Oil ends higher after 'excessive selling' this week sent prices to 7-month lows

By Myra P. Saefong and William Watts

Natural-gas prices down nearly 6% after U.S. supply update

Oil futures ended higher on Thursday, finding support a day after settling at their lowest since January.

Prices recouped a portion of their recent losses, which were attributed to revised U.S. jobs data that stoked worries about the outlook for crude demand.

Price moves

West Texas Intermediate crude CL00 for October delivery CL.1 CLV24 rose $1.08, or 1.5%, to settle at $73.01 a barrel on the New York Mercantile Exchange.October Brent crude BRN00 BRNV24, the global benchmark, gained $1.17, or 1.5%, to $77.22 a barrel on ICE Futures Europe.September gasoline RBU24 tacked on 1.8% to $2.24 a gallon, while September heating oil HOU24 added 0.6% to $2.26 a gallon.Natural gas for September delivery NGU24 settled at $2.05 per million British thermal units, down 5.7%.

Market drivers

A "small correction was necessary to fix the excessive selling seen earlier in the week," said Manish Raj, managing director at Velandera Energy Partners. Oil prices had posted declines for four sessions in a row through Wednesday.

'The underlying trend for oil is still negative, but the traders are not convinced that there is only doom and gloom.'Manish Raj, Velandera Energy Partners

"The underlying trend for oil is still negative, but the traders are not convinced that there is only doom and gloom," said Raj. Despite lackluster Chinese and European demand, there are still bright spots such as India, which has now become the largest buyer of Russian oil, he noted.

The next "big event risk" for oil, however, will be the Jackson Hole Economic Symposium, where Federal Reserve Chair Jerome Powell's Friday speech will be in focus, Lukman Otunuga, manager of market analysis at FXTM, told MarketWatch.

"Any confirmation around lower rates in September by the Fed chair may offer Brent a boost, pushing prices back above $78," he said. "Should the central bank sound less dovish than expected with little insight on future U.S. rate cuts, oil bears could be empowered to drag prices below $75."

Velandera's Raj said the September U.S. interest-rate-cut expectation is "100% priced in," so Powell's speech will move the market "only if he throws a curve ball." Markets "hate curve balls and therefore traders are playing [it] safe" until Powell's speech, he added.

Read Fed's Jackson Hole meeting: A plan to cut rates gradually is emerging

WTI ended Wednesday's session at its lowest since Jan. 10, while Brent closed at its lowest since Jan. 2. Analysts tied the weakness to a revision of benchmark jobs data by the Bureau of Labor Statistics, which showed the U.S. economy created 818,000 fewer jobs in the 12 months ending in March 2024 than previously estimated.

"The ugly payrolls revision didn't do much good to sentiment in oil, apparently," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note.

"The black gold is preparing to test the $72pb [per barrel] support to the downside, and the bearish momentum has enough strength to carry the move toward the $70pb psychological mark," she wrote, referring to WTI crude.

Crude slumped this week as investors erased part of the risk premium associated with fears of a direct Israel-Iran conflict that could threaten crude flows from the Middle East.

A feared retaliatory attack on Israel by Iran following the late July back-to-back assassinations of top Hezbollah and Hamas officials has yet to materialize, with Tehran reportedly tying a potential move to the outcome of talks toward a cease-fire between Israel and Hamas in Gaza. Those negotiations have yet to produce a breakthrough.

For the week, however, WTI and Brent crude both traded lower.

It has become "very clear that we need a strong demand catalyst to support the price, despite the fact that we had a more favorable reading on the U.S. crude-oil inventories data," Naeem Aslam, chief investment officer at Zaye Capital Markets, said in market commentary. The Energy Information Administration on Wednesday reported a weekly fall of 4.6 million barrels in domestic commercial crude supplies.

Traders will want to see "a real boost in the second-biggest oil consumer, which is China," Aslam said.

He said oil prices have reached a "dangerous level," prompting members of the Organization of the Petroleum Exporting Countries to "consider a policy response, as they aim to prevent oil prices from falling below the $70 handle."

Even if there is an OPEC policy response, "that would only be a small fix and not an actual solution to the problem on hand - which is feeble demand," Aslam said.

Natural-gas futures, meanwhile, ended with a nearly 6% loss after the EIA reported that U.S. supplies of the fuel climbed 35 billion cubic feet for the week ended Aug. 16. Analysts had forecast an increase of 28 bcf, according to a survey conducted by the Wall Street Journal.

-Myra P. Saefong -William Watts

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08-22-24 1536ET

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